End result... It seems HDMI units be them a PC or BLURAY player etc... do a hand shake of sorts with the other end.
So, No options accept stereo in my "AMD HDMI output" config using an HDMI cable from PC to 55" LCD TV and then an optical out from TV to 8 year old Kenwood reciever (Hey tight in it's day! But, the hand shake saw a TV with 2 speakers. Not the Kenwood reciever).
I run accross this hand shake (wrong term prob but we get it) thing searching this subject and bought a 2011 reciever with 4 HDMI inputs and 1 HDMI out to your TV. Good stuff. ATI's Catalist Control Center see's the new reciever not the TV and that rocks. First test failed Crysis played in Stereo. Test 2 was a bluray and played the master audio 5.1 flawlessly. This must have caused the hand shake because I reopened the game and the "AMD HDMI output" with 5.1 channel output on each. Spread this around as it was to difficult to find. Also note that software has to be modern enough to output 5.1. I use Total Medea Theater 5. I expect any of us with knowledge of this hand shake to post thanks.
FLIPPY
It's not really new technology Philip, it's called HDCP or High-bandwidth Digital Copy Protection and has been around since DVI hit our beloved PCs, it can be used to automatically detect your display settings and adjust them accordingly, but it is mainly used to play protected content on hard wired displays, if you don't have HDCP enabled then protected content will not play on the connected display, it's basically a more advanced version of uPnP but with less complication
No on the bitstreaming, I will need an explaination,maybe. This - "When you set your PS3 to bitstream, it will send DD5.1 as bitstream but it will limit PCM to 2.0 channels. If you set your PS3 to PCM, it will internally decode everything and send it as pcm. It will send PCM in its original form, either 5.1 or 7.1 With that in mind, there is no reason why you should set you PS3 to bitstream." And - " Bitstream is fine for PCM, but you'll need to set it to PCM to get TrueHD like on the upcoming NIN release.
PCM = Player decodes
Bitstream = Receiver decodes
That's the long and the short of it." Are quotes from http://forum.blu-ray.com/receivers/24132-linear-pcm-vs-bitstream.html
If I am not misslead and I understand these Quotes my ati 5870 graphics card decoded the game audio (PCM) acording to what it found on the other end (hence the change noted in my Catalist Control Center from 55" TV to reciever) and gave me 5.1 audio for Crysis 2. Am I fine leaving it alone then? Second - As of this time i am drawing a blank as to where and how to try Bitstream (set it) from my PC.
Thanks all
You're almost there. Your 5870 can bitstream, but since you're using onboard audio, you're not set up correctly. You can't bitstream using an optical cable (or analog). For 5.1 sound in this configuration you'd need 6 analog cables going from the sound chip to the receiver.
The best way, and easiest, is to just use an hdmi 2.0 cable and disable/not use the onboard audio.
If you process audio on the PC, then everything passed to the receiver is going to be 2 channel stereo. The receiver uses it's surround decoders to give you 5.1, but that's processing the audio twice... which is redundant and a waste. If you bitstream, the PC processes no audio.
PCM is just another audio source. All DVD's and Blurays come with a PCM track. It is lossless master audio, just like DTS-HD MA and TrueHD. The sound quality is great and unrecognizable between the three once you set up bitstreaming.
(Hey tight in it's day! But, the hand shake saw a TV with 2 speakers. Not the Kenwood reciever). 
